$5 challenge helps unemployed mom save $1K for holiday

Astronaut Chris Hadfield poses for a photo with a new polymer $5 bank note on Tuesday, April 30, 2013. Those $5 notes can get you a long way when you start saving them (although possibly not to space). (CP)

Any savvy saver knows that putting away a little bit of money at regular intervals can add up.

That’s exactly what an Australian mother did to help her overcome vacation-budgeting woes.

Vickii, a single mother from South Australia, had booked a trip to Bali with her two-year-old son when she found out her job had been terminated.

“I had saved a little bit of money up but not much. I was stressing about it a little, but if I got too stuck I was going to get a small loan out to help pay,” Vickii told Australian parenting website Kidspot.

Just as she was stressing about her finances, Vickii came across the $5 challenge on Facebook and was inspired to give it a try.

“I saw it and thought I would give it a go,” Vickii told Kidspot. “I normally just pay-waved everything but after seeing it I started getting money out and using cash.”

The concept has been widely shared over the last few years: every time you get a $5 bill, you have to save it.

Vickii started saving her $5 bills, and in six months she managed to bank $1,060, which was enough to cover the expenses in Bali for her and her son.

“I found it a little challenging not to spend one, but I was excited at the same time to see how many I could actually get,” Vickii said.

“There were a few times I had no choice but to spend some, so I made a deal to myself every time I spent one $5 note, I then had to put a $10 or $20 in.”

Why it works

Numerous bloggers and finance experts have cited the $5 challenge as a fun and straightforward way to save a bit of money. Some banks have started similar savings programs built into their accounts, such as the Scotiabank Bank the Rest program, which rounds up debit purchases to the nearest $1 or $5 amount and puts it into a TFSA.

There are a couple of reasons why so many people, including Vickii, have found the $5 challenge to be successful:

1. It’s an easy rule to follow

As with healthy eating, exercise and everything else we’re meant to do because it’s good for us, saving money will only work if it’s simple and easy to do. Once your savings plan gets too complex, chances are you’ll lose interest and give up. The $5 challenge is a straightforward rule to follow, easy to remember and has a very tangible result as you see those $5 bills start to stack up.

2. It forces you to use cash

Personal finance experts will often recommend that people looking to get their finances on track should go on a “cash diet,” and there’s a good reason for it: it forces you to look at how much you’re spending. With credit or debit cards, it’s easy to spend money without being aware of how much is actually flowing out of your bank account. With cash, however, you have a visual reminder of how much things actually cost, compared to how much money you have.

Yahoo Canada Finance readers, do you follow any rules to save money? Share them with us in the comments!